1. Financing WWT infrastructure construction in Croatia issues and challenges of UWWTD harmonization
2017 Danube Water Conference:
Challenges of Financing Water Services for Development
May 17-18, 2017, Vienna, Austria
Section:
Financing wastewater treatment infrastructure and its operation

2. Summary of Characteristics
Hydrographically, the territory is divided into: the Danube River basin district, and the Adriatic River basin district.
Administrative structure: 21 units of regional self- government (555 units of local self-government, 126 cities and 429 municipalities), a total of 6,756 settlements with 4,284,889 inhabitants (2011 Census).
Water supply connection rate: 86% (2015)
Wastewater services connection rate: 50% (2015)
Drinking water quality: 95% of samples meet criteria
Delivered water – 300 million m3 per year
Average water price for households - around 15 kn/m3 (or 2 euro/m3)

3. Strategic objectives defined by
Water Management Strategy vodama
Treaty and negotiations between Croatia and the European Commission under Chapter 27 Environment (2010), IMPLEMENTATION PLAN FOR WATER UTILITY DIRECTIVES vodnih-direktiva
Long-term program of construction of water and wastewater infrastructure gradnje
River Basin Management Plan vodnim-podrucjima
The mission of Hrvatske vode is to manage waters in the Republic of Croatia in order to:
Protect human lives, health and assets from adverse effects of water, and to
Ensure permanent availability of water by optimizing economic and environmental benefits under the principles of sustainable development.

4. Public water service providers
Water Act defines water services as public water supply and public wastewater collection and treatment.
Public water supply and wastewater collection and treatment are under the authority of local self- government units (towns/municipalities).
Water supply and wastewater treatment activities are performed by utility companies (a total of around providers of water services).

5. Waste water and treatment
eu accession treaty & IMPLEMENTATION DEADLINES
transitional period for WATER UTILITY DIRECTIVES
In 2011
all Chapters closed (negotiation ended)
12 years
(7+5)
Requested transitional periods
limited
in terms
time and content
2018 & 2021(3)
Croatia has requested: a transitional period until the end of 2018 for the implementation of provisions concerning microbiological parameters, and as a MS, Croatia intends to request a transitional period of additional 3 years for compliance with certain chemical parameters, in total until the year potentially 3 years
Water supply
2018
2020
2023
Wastewater collection and treatment, treatment of wastewater according to proscribed standards and deadlines (2018, 2020 & 2023) for different scale of agglomerations and sensitivity (around 300 agglomeration above PE).
Establishment/definition of sensitive areas were also part of the negotiation process.
Waste water and treatment

6. IMPLEMENTATION FRAMEWORK
Implementation activity were/are accompanied by the preparation of planning documents for water management that determine the framework for investments into the construction of water utility structures.
These documents must also follow thematic objectives and investment priorities on the level of the EU thus ensuring financial support for implementation through EU funds.
Focus on plans and programs, national coverage, making an environment for investments projects (This is the approach that we strongly recommend).

7. Planning and programming (1)
IPA Projects (EU funds, 200 mil EUR)
Identification of areas where priority investments are to be made, even during EU accession negotiations, has made it possible to implement a number of projects, among more significant projects are projects that use loans from international development banks and pre-accession EU funds.
Inland Waters Project
(WB, 100 mil EUR)
Coastal Cities Pollution
Control Project (WB, 200 mil EUR)

8. Planning and programming (2)
Total estimated investments in water utility infrastructure projects in the period 2015 – 2023 amount to 28 billion HRK (3,8 billion euros), out of which 23% are investments in public water supply, and 77% in public sewer system.
In the period 2015 – 2023 the investment program is planned to be implemented through:
Project EU structural instruments
IFI loans
Usual national financing mechanisms.
More than 95% of the investment value is planned to be nominated for EU funds, therefore analysis has been conducted under the EU project financing conditions.
Breakdown of sector financing sources

9. Economics (wfd ARTICLE 9) Implementation of the EU water utility directives is significantly affected by the WFD, which requires a water pricing policy to follow the principle of recovery of costs of water services, incl. E&R costs
Due to estimated high investment costs and the need to introduce water pricing under the cost recovery principle (incl. investment, O&M, depreciation costs etc.).
An affordability analysis is the most demanding and at the same time the most important part of organizing the implementation of the investment programme.

10. IMPLEMENTATION difficulties
Obligation to implement water utility directives „VS” financial/organizational capacity)
IMPLEMENTATION difficulties
Organizing implementation is very complex due to fragmented water utility companies and limited affordability of future water price.
Justified imposed measure is technical, organizational and financial consolidation of public water service providers (156 to around 30) for the purpose of securing cost recovery and socially affordable water service prices, developing capacities for water facilities ensures the implementation of Accession Treaty obligations (technical/ financial implementation efficiency means optimized design quality and cost effectiveness, considering total cost (Opex and Capex) not only investments.
Despite the fact that the measure was imposed on the national level, it has very limited real force because it interferes with the rights at the local level in the organization of water services. Consolidation takes too long and slowly hampers implementation.

11. Preparation of water utility infrastructure development project for EU financing (1)
Operational Programme 2007 – 2013
Eu FUNDS MIL. eUR
Operational Programme
EU FUNDS MIL. EUR
In the first programme period, activities were primarily aimed at the establishment of structure and processes, as well as establishment of project preparation support system, including project eligibility criteria.
Activities included the selection of methodology for evaluation of project eligibility, i.e. feasibility studies and supporting financial and economic analyses.
Project preparation has introduced certain new requirements for project eligibility, mostly due to:
introduction of additional criteria on the level of the European Union, including more emphasis on the requirements of the Water Framework Directive, Directive on Waste, Birds Directive and Habitats Directive (Natura 2000), but also
requirements for necessary changes and reforms required for “enabling” the implementation.

12. Preparation of water utility infrastructure development project for EU financing (2)
The changed structure of project preparation components and somewhat different limits of the project preparation system are best reflected in requirements for:
aggregation of public water service providers on the project level (when the project covers several providers or provider has not fulfilled the project application criteria)
resolving the sensitive issue of sludge disposal
implementation of methodology of combined approach (for discharge when basic measures fail to achieve water protection objectives)
assessment of impact on water bodies and Natura sites, through proper implementation of requirements related to environmental protection measures
In OP 2014 – 2020, there is more interaction between project preparation system and the environment, where the successfulness of project preparation largely depends on the initiative of local self-government units in charge of organizing water services, as well as organizational and professional capacities of water service providers.
Based on systematic analysis of processes and interconnection between components of project preparation system, a large number of launched projects have been prioritized and systematized, and consultants and public water service providers have been instructed with focus on major projects.
The results can be seen in about 40 projects ready for finalization, with resolved: scope, cost eligibility, capacity of public water service provider, polluter pays principle, future water price affordability, sludge issue, combined approach, majority of proscribed procedures.

13. Implementation – starting position (2010)
experiences
Implementation – starting position (2010)
Awareness that implementation of UWWTD & DWD depends on the social affordability of water tariff which is the only source of financing the operational costs (cost recovery principle)
,,,,but also tagged with
,,,ongoing critical public and professional discussion on high standards,,, financial capacity,,, taken commitments (who, why,,,)
and belief
that the costs are the biggest problem (especially investment costs).
Croatian situation confirms that implementation efficiency depends less on costs (or set standards), but more on incorporating implementation into existing administrative & management mechanisms
The main focus and negotiation positions defended by Croatia, e.g. on standards, were linked to costs, to try to reduce them. Nonetheless, now when money is there, Croatia struggles to use it
Real „integration” of water utility directives (standards, cost recovery principle organizational aspects, safe supply and high level of service provided) into the institutional framework is a way that would ensure efficient implementation (not only taking over Acquis but also remaining provisions of national regulation which regulate different management mechanisms)

14. Final remarks
Despite the fact that the planning documents touch upon all key aspects, the extent of the necessary changes and reforms which needed to be put in place to facilitate implementation only became clear during implementation.
In particular, the sector needed to be restructured, the utilities needed to be reorganized for economies of scale, laws needed to be amended to allow the consolidation of utilities and to streamline administrative processes such as construction permits, impact assessment, land acquisition, procurement, etc.).
In Croatia, investment funding is not the main bottleneck in a good implementation perspective, capacity to sustain these investments technically and financially (O&M) is the main concern.
More attention is needed for:
DWD, which is even complex in terms of standard, as well as implementation.
EU reporting system, which comes very soon (establishment of a good database, even if data are there, they are mostly not properly structured or well aggregated, specially for cost recovery calculation, project level, even demanding on the national level).

15. CONCLUSIONS
Planning and program framework – prepared on the national level and connected with thematic objectives on the level of the European Union – YES (DEFINED)
Secured support from European Union funds – YES (Secured).
Capacity of service providers and water price affordability impact project preparation and selection (they result in scope reduction or rejection due to non-affordability, implementation obligation nonetheless remains) – STEPS FORWARD REQUIRED, TO START WITH RESTRUCTURING AT LEAST ON PROJECT LEVEL, COMPLETE REFORM AS SOON AS POSSIBLE
Need for wider discussion on consequences of implementation delays and additional institutional mechanisms for speeding up implementation (more formal taking over of responsibilities on the local level, Law?) – step forward REQUIRED.
For procurement of goods, works and services, standardization of criteria and tender documents, new Public Procurement Act in force (harmonized with EU Directive) – STEP FORWARD REQUIRED.
Project control: Hrvatske vode – support to Beneficiary, Jaspers, IB1, IB2, non-acceptance of control results on the local (sometimes by consultants) – NECESSARY ACCEPTANCE OF PRINCIPLES (on all levels, requirement for project approval) – STEP FORWARD REQUIRED.
Implementation of water utility directives is an institutional obligation, but also
Encouragement, not only for institutional adaptation, but also for technological and technical, organizational, personnel and financial reorganization of Croatian water utility management

16. Vesna Grizelj Šimić, Hrvatske vode Vesna.GrizeljSimic@voda.hr
Thank you
Vesna Grizelj Šimić, Hrvatske vode